An omnibus account, also called a ‘cash management’ or ‘asset management’ account, is a kind of stock holding trading and clearing account between two or more futures merchants (brokers).
Essentially, this means that the transactions of two or more parties are combined in the name of one broker, instead of being designated separately.
The manager of the account is referred to as a ‘futures merchant’. The futures merchant is in charge of managing and holding the investments of a group of clients in one account.
Despite the clients not having their name attached to the account they are still considered as stock holders.
The manager handles the transaction of individual accounts, which are combined, making it easier for the futures merchant to manage. Brokers often charge a ‘futures commission’ for handling the account.
Advantages of an omnibus account include:
- Rapid distribution of dividends.
- Lower fees associated with maintaining the account and transfers.
- Internalized settlement.
- Allows investors to circumvent the ‘red tape’ associated with buying and selling stocks.
- Individual account holders can remain anonymous.
Disadvantages of an omnibus account include:
- Effect of permanent shortfalls.
- Forced borrowing.
- Distance between issuer and investor.
- Conflicting votes.
- In some countries and jurisdictions these accounts are not allowed.
According to nasdaq.com, an omnibus account is:
“An account carried by one futures commission merchant with another futures commission merchant in which the transactions of two or more persons are combined and carried in the name of the originating broker, rather than designated separately.”